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MGT411 Solved MCQ

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Question # 1 of 20

Bonds without maturity dates are which of the followings?

Select correct option:

Zero coupon bonds

Coupon securities

Consols

Preferred Bonds

Question # 4 of 20 ( Start time: 08:02:08 PM )

Total Marks: 1

Which of the following represents the fisher’s equation?

Select correct option:

Nominal interest rate = real interest rate + inflation

Nominal interest rate + inflation = real interest rate

Nominal interest rate = real interest rate - inflation

Nominal interest rate = real interest rate / inflation

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Question # 5 of 20 ( Start time: 08:03:08 PM )

Total Marks: 1

The return on holding a bond till its maturity is called:

Select correct option:

Coupon rate

Yield to maturity

Current yield

Internal rate of return

Question # 6 of 20 ( Start time: 08:03:27 PM )

Total Marks: 1

Wider the range of outcome wider will be the ___________.

Select correct option:

Risk

Profit

Probability

Lose

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Question # 7 of 20 ( Start time: 08:04:42 PM )

Total Marks: 1

The interest rate that is involved in _____________ calculation is referred to as discount rate

Select correct option:

Present value

Future value

Intrinsic value

Discount value

Question # 8 of 20 ( Start time: 08:06:05 PM )

Total Marks: 1

Bonds that are issued by Government are called _________.

Select correct option:

Government bond

Treasury bond

Corporate bond

Callable Bonds

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Question # 13 of 20 ( Start time: 08:13:26 PM )

Total Marks: 1

If a bond sells at a premium, where price exceeds face value, then we would expect to see:

Select correct option:

Market interest rate the same as the coupon rate

Market interest rates above the coupon rate

Market interest rates below the coupon rate

All of the given options

Question # 14 of 20 ( Start time: 08:14:49 PM )

Total Marks: 1

With direct finance we mean which of the following?

Select correct option:

Individuals (or firms) borrow directly from the savers

Individuals (or firms) borrow directly from banks.

Individuals deposit savings directly in banks.

Firms deposit savings directly in banks.

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Question # 15 of 20 ( Start time: 08:16:14 PM )

Total Marks: 1

Investors will hold higher compensation for the __________ investment.

Select correct option:

More risky

Less risky

Fixed return

Less dividend

Question # 16 of 20 ( Start time: 08:17:16 PM )

Total Marks: 1

Which of the following best expresses the proceeds a lender receives from a simple loan?

Select correct option:

PV(1 + i)

FV/i

PV + i

PV/i

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Question # 17 of 20 ( Start time: 08:18:11 PM )

Total Marks: 1

A financial instrument in which a borrower obtains resources from a lender immediately in


exchange for a promised set of payments in the future is called as ___________.

Select correct option:

Bond

Bank Loan

Home Mortgage

Futures Contract

Question # 18 of 20 ( Start time: 08:19:18 PM )

Total Marks: 1

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the
money will be t =72/i%

Select correct option:

Doubles

Triples

halves

3/4

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Question # 19 of 20 ( Start time: 08:19:37 PM )

Total Marks: 1

The return on the bond is equal to which of the following?

Select correct option:

Coupon rate + rate of capital gains

Current yield + rate of capital gains

Coupon rate - rate of capital gains

Current yield - rate of capital gains

Question # 20 of 20 ( Start time: 08:21:06 PM )

Total Marks: 1

A loan that is used to purchase the real estate is known as:

Select correct option:

Real estate loan

Home mortgages

Fixed payment loan

Home loan

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Question # 2 of 20

When a bond becomes more liquid relative to its alternatives, the demand curve for bonds shifts
to the:

Select correct option:

Right

Left

No change

None of the given options

Question # 4 of 20

Consumer Price Index (CPI) measures the:

Select correct option:

Changes in the quantity

Changes in the prices

Changes in the cost

Changes in the profit

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Question # 5 of 20

A risk-averse investor will:

Select correct option:

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same expected return but
any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

Question # 9 of 20

Total Marks: 1

Which of the following best represent the true relationships between interest rates and bond
prices?

Select correct option:

Move in the same direction

Move in opposite direction

Sometimes move in the same direction, some times in opposite direction

Have no relationship with each other (i.e. they are independent)

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Question # 10 of 20

Total Marks: 1

Which one of the following is a component of wealth that is held in a readily spendable form?

Select correct option:

Money

Bonds

Stocks

Income

Question # 11 of 20

Total Marks: 1

The return on the bond is equal to which of the following?

Select correct option:

Coupon rate + rate of capital gains

Current yield + rate of capital gains

Coupon rate - rate of capital gains

Current yield - rate of capital gains

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Question # 13 of 20 ( Start time: 08:41:14 PM )

Time affects the value of which of the following?

Select correct option:

Financial Instruments

Financial Markets

Financial Institutions

Central Banks

Question # 14 of 20

Total Marks: 1

Which of the following statement is true about the relation ship between bond ,coupon payment
and interest?

Select correct option:

Coupon payments fall, the interest rate falls, and Bond price will rise

Coupon payments rises, the interest rate falls, and Bond price will rise

Coupon payments fall, the interest rate falls, and Bond price will fall

Coupon payments rise, the interest rate falls, and Bond price will fall

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Question # 15 of 20

Total Marks: 1

The current yield on a $10,000, 5% coupon bond selling for $8,000 is:

Select correct option:

5.00%

6.25%

7.50%

8.00%

solution = coupon payment/price (so coupon payment 5%of 10,000 = 500)

= 500/8000 = .0625 *100 = 6.25%

Question # 19 of 20

Total Marks: 1

There is no guarantee that a bond issuer will make the promised payments is known as which
one of the following?

Select correct option:

Default risk

Inflation risk

Interest rate risk

Systematic risk

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Question # 20 of 20

Total Marks: 1

What will be the result of the difference of real and nominal interest rate?

Select correct option:

The cost of borrowing

The effect of inflation

The price of bonds

The return of bonds

Question # 1 of 20

The Financial Systems makes it easier to trade because it:

Select correct option: Facilitate Payments

Channels Funds from Savers to Borrowers

Enables Risk Sharing

All of the given options

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Question # 2 of 20

The process of financial intermediation:

Select correct option:

Creates a net cost to an economy but is unavoidable

Is used primarily in underdeveloped countries

Is always used when a borrower needs to obtain funds

Increases the economy's ability to produce

Question # 3 of 20

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return

Greater the risk the return will remain constant

Question # 4 of 20

Financial instruments are evolved just as ____________.

Select correct option:

Currency

Stock

Bond

Commodity

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Question # 5 of 20

Beside default risk which one if the following factor affects the return on bond?

Select correct option:

Taxes

Monetary policy

Junk bonds

Debt

The second important factor that affects the return on a bond is taxes

Question # 7 of 20 ( Start time: 06:31:33 PM ) Total Marks: 1

Which of the following is the measure of likelihood that an event will occur?

Select correct option:

Risk

Probability

Frequency

Question # 8 of 20

According to the liquidity premium theory of the term structure, when the yield
curve has its usual slope, the market expects

Select correct option:

Short-term interest rates to rise sharply

Short-term interest rates to stay near their current levels

Short-term interest rates to drop sharply

Short-term interest rates does not change

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Question # 9 of 20 Home loans and car loans are the example of which one of
the following?

Select correct option:

Mortgage loans

Pledge

Fixed Payment Loans

Fixed Payment Loans

They promise a fixed number of equal payments at regular intervals

Home mortgages and car loans are examples of fixed payment loans

Question # 10 of 20

Which one of the following is the procedure of finding out the Present Value
(PV)?

Select correct option:

Discounting

Compounding

Time value of money

Bond pricing

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Question # 12 of 20

Considering the Liquidity Premium Theory, if investors expect short term interest
rates to decrease:

Select correct option:

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat

The slope of the yield curve should actually increase

Question # 14 of 20

Most of the people among us are ___________.

Select correct option:

Risk lovers

Risk enhancers

Risk averse

Risk tolerating

Question # 15 of 20

A risk-averse investor will:

Select correct option:

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same
expected return but any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

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Question # 16 of 20

The liquidity premium theory suggests that yield curves should usually be:

Select correct option:

Up-sloping

Inverted

Flat

Up-sloping through year 1, then flat thereafter

Wider the range of outcome wider will be the ___________.

Select correct option:

Risk

Profit

Probability

Measuring Risk

Most of us have an intuitive sense for risk and its measurement;

The wider the range of outcomes the greater the risk

The return on holding a bond till its maturity is called:

Coupon rate

Yield to maturity

Current yield

Fixed return

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Question # 20 of 20

If information in a financial market is asymmetric, this means:

Select correct option:

Borrowers and lenders have perfect information

Borrowers would have more information than lenders

Borrowers and lenders have the same information

Lenders lack any information

According to the rule of 72 for reasonable rates of return, the time it takes to __________ the
money will be t =72/i%

Select correct option:

Doubles

Triples

Halves

3/4

Stock market bubbles can lead to:

Select correct option:

An inefficient allocation of resources

Stock market crashes

Patterns of volatile returns from the stock market

All of the given options

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Which one of the following is true for the relationship between the yield of taxable and tax exempt
bond?

Select correct option:

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond

change

The Dividend-Discount Model of stock valuation:

Select correct option:

Takes the annual dividend, adds it to the expected future selling price and divides by the number
of years to get the current price

Takes the net present value of expected dividends and add it to the future sale price of the stock

Takes the net present value of the expected future price of the stock and add the annual dividend

Is an application of the net present value formula

In which of the following bonds we may ignore the default risk?

Select correct option:

Privately issued bonds

Government issued bonds

Bonds issued by Corporate

All of the given options

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The slope of the yield curve seems to predict the performance of the economy with:

Select correct option:

Usually 3 months lag

Usually two years lag

Usually within few weeks

Usually one year lag

The GDP deflator is calculated as___________.

Select correct option:

Nominal GDP/Real GDP *100

Real GDP/Nominal GDP

Nominal GDP – Real GDP

Real GDP – Nominal GDP

What is true about the relationship between standard deviation and risk?

Select correct option:

Greater the standard deviation greater will be the risk

Greater the standard deviation lower will be the risk

Greater the standard deviation risk remains the same

No relation between them

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The concept of limited liability says a stockholder of a corporation:

Select correct option:

Is liable for the corporation's liabilities, but nothing more

Cannot receive dividends that exceed their investment

Cannot own more than fiver percent of any public corporation

Cannot lose more than their investment

Which of the following best describes the relationship between Bond prices and yields?

Select correct option:

Move together inversely

Bond yields do not change since the coupon is fixed

Move together directly

Are independent of each other

Which of the following best expresses the payment a lender receives for lending their money for
four years?

Select correct option:

PV(1+i)4

PV/(1 + i)4

4PV

PV/(1 - i)4

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If YTM is greater than the coupon rate the price of the bond is __________.

Select correct option:

Greater than its face value

Lower than its face value

Equals to its face value

All of the given options

Bond Price < Face Value:

Coupon Rate < Current Yield < Yield to Maturity

Question # 1

The____________ are an assessment of the creditworthiness of the corporate


issuer.
Select correct option:

Bond yield

Bond price

Bond risk
Bond ratings

Bond price

Question # 2
Which of the following statement is true for the given sentence, "that tax affects
the bond return"?
Select correct option:

Because only interest income they receive from bond is taxable


Because principal amount and interest income they receive from bond is taxable
Because bond holders are taxpayers
Because all bond is sold with a condition that tax will be deducted from its return

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The second important factor that affects the return on a bond is taxes

Bondholders must pay income tax on the interest income they receive from
privately issued

Question # 3
The relationship between the price and the interest rate for a zero coupon bond
is best described as:
Select correct option:

Volatile
Stable
Non-existent
Inverse

Question # 4

When stock prices reflect fundamental values:


Select correct option:

All investors will experience capital gains


All companies will have an easier task of obtaining financing for investment
projects
The allocation of resources will be more efficient
The overall level of the stock market should move higher continuously

Question # 5
Coupon bonds make the annual payments which are called as ___________.
Select correct option:

Annual payments
Fixed payments
Coupon payments
Maturity payment

Question # 6

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If information in a financial market is asymmetric, this means:
Select correct option:

Borrowers and lenders have perfect information


Borrowers would have more information than lenders
Borrowers and lenders have the same information
Lenders lack any information

Question # 7
If YTM equals the coupon rate the price of the bond is __________.
Select correct option:

Greater than its face value


Lower than its face value
Equals to its face value
Insufficient information

Question # 8

The Financial Systems makes it easier to trade because it:


Select correct option:

Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing
All of the given options

Question # 9 of
Debt instruments is categorized on the basis of which one of the following?
Select correct option:

Loan maturity period


Interest rates
Mode of payment of interest
Amount of the debt taken

Question # 10
The return on holding a bond till its maturity is called:
Select correct option:

Coupon rate
Yield to maturity
Current yield
Internal rate of return

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Question # 11
Which of the following are used to monitor and stabilize the economy?
Select correct option:

Stock exchanges
Commercial Banks
Central Banks

Financial institutions

Question # 12

Previously financial markets are located in which of the following?


Select correct option:

Coffee houses or Taverns .


Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Financial Markets

To buy and sell financial instruments quickly and cheaply

Evolved from coffeehouses to trading places (Stock exchanges) to electronic


networks

Transactions are much more cheaper now

Markets offer a broader array of financial instruments than were available even
50 years ago

Question # 13

Requiring a large deductible on the part of an insured is one way insurers treat
the problem of:
Select correct option:

Free-riding

Moral hazard
Adverse selection
The Lemons market

Question # 14
Which one of the following is the procedure of finding out the Present Value

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(PV)?
Select correct option:

Discounting
Compounding
Time value of money
Bond pricing

Question # 15

_____________ are organized to eliminate the need of costly information


gathering.
Select correct option:

Central bank
Commercial banks
Stock exchanges
Insurance companies

Question # 16
With direct finance we mean which of the following?
Select correct option:

Individuals (or firms) borrow directly from the savers


Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.

Question # 17

Yield curves show which of the followings?


Select correct option:

The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields)

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Question # 18
In a financial market where information is symmetric:
Select correct option:

The same information would be known by both parties in a transaction


One party to a transaction knows information the other party does not
The ability to obtain information is available to only one party
All of the given options

Question # 19
Other things remaining equal, the liquidity premium theory is based upon the idea
that ____________.
Select correct option:

Investors prefer long-term bonds


Investors prefer short-term bonds
Investors are indifferent between short-term and long-term bonds
Investors prefer intermediate-term bonds

Question # 20
Spreading involves:
Select correct option:

Finding assets whose returns are perfectly negatively correlated


Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently

Question # 1 of 20 ( Start time: 05:44:09 PM ) Total Marks: 1


___________ is the strategy of reducing overall risk by making two investments
with opposing risks.
Select correct option:

Spreading the risk


Standard deviation
Hedging the risk
Variance

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Question # 2 of 20 ( Start time: 05:44:45 PM ) Total Marks: 1
The lowest rating for an investment grade bond assigned by Moody's is:
Select correct option:

BBB
ABB
Baa
Aaa

Which one of the following is the narrowest definition of money?


Select correct option:

C
M1
M2
M3
Question # 4 of 20 ( Start time: 05:46:15 PM ) Total Marks: 1
The price of a coupon bond can best be described as:
Select correct option:

The present value of the face value


The future value of the coupon payments and the face value
The present value of the coupon payments
Both The present value of the face value and of the coupon payments

Question # 5 of 20 ( Start time: 05:46:53 PM ) Total Marks: 1


We need __________ to carry out day to day transactions.
Select correct option:

Money
Bonds
Stocks
Loans

Question # 6 of 20 ( Start time: 05:47:16 PM ) Total Marks: 1


The process of financial intermediation:
Select correct option:

Creates a net cost to an economy but is unavoidable


Is used primarily in underdeveloped countries
Is always used when a borrower needs to obtain funds
Increases the economy's ability to produce

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Question # 7 of 20 ( Start time: 05:47:51 PM ) Total Marks: 1
Considering the Liquidity Premium Theory, if investors expect short term interest
rates to decrease:
Select correct option:

The yield curve must have a positive slope


The yield curve must be inverted
The yield curve could be flat
The slope of the yield curve should actually increase

Question # 8 of 20 ( Start time: 05:48:41 PM ) Total Marks: 1


Which one of the following is true for the relationship between the yield of taxable
and tax exempt bond?
Select correct option:

Higher the tax rate wider the gap between the yield of taxable and tax
exempt bond
Taxable bond yield is always greater than tax exempt bond
Higher the tax rate shorter the gap between yield of taxable and tax exempt bond
Lower the tax rate wider the gap between yield of taxable and tax exempt bond

Question # 9 of 20 ( Start time: 05:49:13 PM ) Total Marks: 1


Which of the following expresses 6.5%?
Select correct option:

0.0065
6.50
0.650
0.0650

Question # 10 of 20 ( Start time: 05:50:19 PM ) Total Marks: 1


What will be the result of the difference of real and nominal interest rate?
Select correct option:

The cost of borrowing


The effect of inflation
The price of bonds
The return of bonds

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Question # 11 of 20 ( Start time: 05:50:40 PM ) Total Marks: 1
Other things remaining equal, the liquidity premium theory is based upon the idea
that ____________.
Select correct option:

Investors prefer long-term bonds


Investors prefer short-term bonds
Investors are indifferent between short-term and long-term bonds
Investors prefer intermediate-term bonds

Question # 12 of 20 ( Start time: 05:51:25 PM ) Total Marks: 1


The Segmented Markets Theory of term structure suggests that:
Select correct option:

Investors have strong preferences for bonds of a particular maturity


Investors have no preference for short-term bonds over long-term bonds, or vice
versa
Interest rates on long-term bonds strongly influence the demand for short-term
bonds
Bonds of different maturities are perfect substitutes for each other

Question # 13 of 20 ( Start time: 05:52:23 PM ) Total Marks: 1


Often a bank will require a loan officer to make personal visits on customers with
loans outstanding. This is encouraged because:
Select correct option:

The bank worries about competitors trying to steal their customers


The bank wants to make sure the business is still there
The bank likely has excess funds available and hopes to make another loan to
the business
This is an effective monitoring technique and should reduce moral hazard

Question # 14 of 20 ( Start time: 05:53:10 PM ) Total Marks: 1


If the tax rate is higher than gap between yield on taxable and tax exempt bond?
Select correct option:

Shorter
Wider
No gap
Any thing can be possible

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Question # 15 of 20 ( Start time: 05:53:46 PM ) Total Marks: 1
Investors will hold higher compensation for the __________ investment.
Select correct option:

More risky
Less risky
Fixed return
Less dividend

Question # 16 of 20 ( Start time: 05:54:14 PM ) Total Marks: 1


Which of the following are used to monitor and stabilize the economy?
Select correct option:

Stock exchanges
Commercial Banks
Central Banks
Financial institutions

Question # 17 of 20 ( Start time: 05:54:38 PM ) Total Marks: 1


The theory of efficient market states that prices of financial instruments reflect:
Select correct option:

All available information


Some of the information
No information
Imperfect information

Question # 18 of 20 ( Start time: 05:55:37 PM ) Total Marks: 1


With direct finance we mean which of the following?
Select correct option:

Individuals (or firms) borrow directly from the savers


Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks.
Firms deposit savings directly in banks.

Question # 19 of 20 ( Start time: 05:56:08 PM ) Total Marks: 1


Which of the following best describes the relationship between Bond prices and
yields?
Select correct option:

Move together inversely


Bond yields do not change since the coupon is fixed
Move together directly
Are independent of each other

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Question # 20 of 20 ( Start time: 05:56:35 PM ) Total Marks: 1
The fact that common stockholders are residual claimants means:
Select correct option:

The stockholders receive their dividends before any other residuals are paid
The stockholders receive the remains after everyone else is paid
The stockholders are paid any past due dividends before other claims are paid
The common stockholders are responsible for all corporate debts

Question # 1 of 20 ( Start time: 08:59:18 PM ) Total Marks: 1

Which of the following best expresses the payment a lender receives for lending
their money for four years?

Select correct option:

PV(1+i)4

PV/(1 + i)4

4PV

PV/(1 - i)4

Question # 2 of 20 ( Start time: 08:59:55 PM ) Total Marks: 1

Bonds that are issued by Government are called _________.

Select correct option:

Government bond

Treasury bond

Corporate bond

Callable Bonds

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Question # 3 of 20 ( Start time: 09:00:14 PM ) Total Marks: 1

__________ is the interest rate at which the present value annual reveneu
equals the cost of the investment.

Select correct option:

Fixed rate of interest

Internal rate of return

Variable rate of interest

Nominal rate of interest

Question # 4 of 20 ( Start time: 09:00:38 PM ) Total Marks: 1

In which of the following bonds we may ignore the default risk?

Select correct option:

Privately issued bonds

Government issued bonds

Bonds issued by Corporate

All of the given options

Question # 5 of 20 ( Start time: 09:00:53 PM ) Total Marks: 1

Most of the people among us are ___________.

Select correct option:

Risk lovers

Risk enhancers

Risk averse

Risk tolerating

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Question # 7 of 20 ( Start time: 09:01:26 PM ) Total Marks: 1

A risk-averse investor will:

Select correct option:

Always prefer an investment with a lower expected return

Always prefer an investment with a certain return to one with the same
expected return but any amount of uncertainty

Always require a certain return

Always focus exclusively on the expected return

Question # 8 of 20 ( Start time: 09:01:51 PM ) Total Marks: 1

Which of the following is NOT included in the definition of M1?

Select correct option:

Traveler’s checks

Demand deposits

Currency

Gold coins issued by treasury

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Question # 9 of 20 ( Start time: 09:02:04 PM ) Total Marks: 1

Which one of the following is true for financial intermediaries?

Select correct option:

Channel funds from savers to borrowers

Greatly enhance economic efficiency

Have been an source of many financial innovations

All of the given options

Question # 10 of 20 ( Start time: 09:02:32 PM ) Total Marks: 1

The lowest rating for an investment grade bond assigned by Moody's is:

Select correct option:

BBB

ABB

Baa

Aaa

Question # 11 of 20 ( Start time: 09:03:58 PM ) Total Marks: 1

If YTM is less than the coupon rate the price of the bond is __________.

Select correct option:

Greater than its face value

Lower than its face value

Equals to its face value

All of the given options

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Question # 12 of 20 ( Start time: 09:05:29 PM ) Total Marks: 1

What will be the effect on the present value if we double the future value of the
payment?

Select correct option:

It will decrease the value by one-half

It will increase the value by one-half

It will equally increase the value i.e. doubles the value

It will have no effect on the value

Question # 13 of 20 ( Start time: 09:06:06 PM ) Total Marks: 1

Which one of the following is the narrowest definition of money?

Select correct option:

M1

M2

M3

Question # 14 of 20 ( Start time: 09:06:50 PM ) Total Marks: 1

We need __________ to carry out day to day transactions.

Select correct option:

Money

Bonds

Stocks

Loans

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Question # 15 of 20 ( Start time: 09:07:01 PM ) Total Marks: 1

Which one of the following is the strategy of reducing overall risk by making two
investments which are totally independent of each other?

Select correct option:

Spreading the risk

Standard deviation

Hedging the risk

Variance

Question # 16 of 20 ( Start time: 09:08:07 PM ) Total Marks: 1

The Segmented Markets Theory of term structure suggests that:

Select correct option:

Investors have strong preferences for bonds of a particular maturity (This


is correct)

Investors have no preference for short-term bonds over long-term bonds, or vice
versa

Interest rates on long-term bonds strongly influence the demand for short-term
bonds

Bonds of different maturities are perfect substitutes for each other

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Question # 17 of 20 ( Start time: 09:09:36 PM ) Total Marks: 1

The process of financial intermediation:

Select correct option:

Creates a net cost to an economy but is unavoidable

Is used primarily in underdeveloped countries

Is always used when a borrower needs to obtain funds

Increases the economy's ability to produce

Question # 18 of 20 ( Start time: 09:09:56 PM ) Total Marks: 1

What will the yield curve look like if future short-term interest rates are expected
to rise sharply?

Select correct option:

It will steeply slope upward

It will be horizontal

It will slightly slope upward

It will slope downward

Question # 19 of 20 ( Start time: 09:10:37 PM ) Total Marks: 1

Sum of all the probabilities should be equal to which one of the following?

Select correct option:

Zero

One

Two

Three

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Spreading involves:

Select correct option:

Finding assets whose returns are perfectly negatively correlated

Building a portfolio of assets whose returns move together

Investing in bonds and avoiding stocks during bad times

Adding assets to a portfolio that move independently

Internal Rate of Return is _________.

Select correct option:

Present value of investment

Future value of its investment +Cost of investment

Cost of investment

Present value of investment + cost of investment

Which of the following best describes checks?

Select correct option:

A means of payment

Money

Not a promise of any kind

Not acceptable by the U.S. Government for payment of taxes.

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A business cycle downturn shifts the bond supply to the:

Select correct option:

Right

Left

No change

None of the given options

According to the liquidity premium theory of the term structure, when the yield curve has its usual
slope, the market expects

Select correct option:

Short-term interest rates to rise sharply

Short-term interest rates to stay near their current levels

Short-term interest rates to drop sharply

Short-term interest rates does not change

Which of the following represents the fisher’s equation?

Select correct option:

Nominal interest rate = real interest rate + inflation

Nominal interest rate + inflation = real interest rate

Nominal interest rate = real interest rate - inflation

Nominal interest rate = real interest rate / inflation

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Bonds that are issued by Government are called _________.

Select correct option:

Government bond

Treasury bond

Corporate bond

Callable Bonds

What will the yield curve look like if future short-term interest rates are expected to rise sharply?

Select correct option:

It will steeply slope upward

It will be horizontal

It will slightly slope upward

It will slope downward

The interest rate that is involved in _____________ calculation is referred to as discount rate

Select correct option:

Present value

Future value

Intrinsic value

Discount value

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Which one of the following is true for the relationship between the yield of taxable and tax exempt
bond?

Select correct option:

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond

You start with a $1000 portfolio; it loses 40% over the next year, the following year it gains 50% in
value; At the end of two years the worth of your portfolio will be:

Select correct option:

$900

$600

$1000

$1100

first year gain = 1000*.40 = 400

second year loss = 1000*.5 = 500

Total gain or loss after two year = 400-500 = -100

1000-100 = 900

What is true relationship between return and risk?

Select correct option:

Lower the risk greater the return

Greater the risk greater the return

Greater the risk the return will remain constant

No relationship between them

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Which of the following is NOT included in the definition of M1?

Select correct option:

Traveler’s checks

Demand deposits

Currency

Gold coins issued by treasury

The Financial Systems makes it easier to trade because it:

Select correct option:

Facilitate Payments

Channels Funds from Savers to Borrowers

Enables Risk Sharing

All of the given options

Which one of the following agencies assesses the default risk of different issuers?

Select correct option:

Insurance companies

Bond issuing

Credit rating

Recruitment agencies

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In which of the following bonds we may ignore the default risk?

Select correct option:

Privately issued bonds

Government issued bonds

Bonds issued by Corporate

All of the given options

Which of the following best describes default risk?

Select correct option:

The chance the issuer will be unable to make interest payments or repay principal

The chance the issuer will retire the debt early

The chance the issuing firm will be sold to another firm

The chance the issuer will sell more debt

Coupon bonds make the annual payments which are called as ___________.

Select correct option:

Annual payments

Fixed payments

Coupon payments

Maturity payment

Q 1: Investors will hold higher compensation for the __________ investment.

Select correct option:


More risky
Less risky
Fixed return
Less dividend

http://vustudents.ning.com 45
Q 2: Which of the following is true of a nation's central bank?

Select correct option:

It makes important decisions about the nation's tax and public spending policies
It lends only to the nations largest and most important business firms
It has many interactions with the nation's citizens and businesses
It is responsible for conducting the nation's monetary policy

Q 3: A financial instrument in which a borrower obtains resources from a lender


immediately in exchange for a promised set of payments in the future is called as
___________.
Select correct option:

Bond
Bank Loan
Home Mortgage
Futures Contract

Q 4: An increase in wealth shifts the demand for bonds to the __________.


Select correct option:
Left
Right
No change
All of the given options
Q 5: The slope of the yield curve seems to predict the performance of the
economy with:
Select correct option:

Usually 3 months lag


Usually two years lag
Usually within few weeks
Usually one year lag

Q 6: If YTM equals the coupon rate the price of the bond is __________.
Select correct option:
Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information

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Q 7: An increase in the expected inflation shifts the bond demand to the
_________. Select correct option:

Right
Left
No change
All of the given options

Q 8: Which of the following would be considered characteristic of money?


It is store of value
It pays a higher return than most assets
It is in fixed supply
It is legal tender everywhere in the world

Q 9: The interest rate that is involved in _____________ calculation is referred to


as discount rate
Select correct option:

Present value
Future value
Intrinsic value
Discount value

Q 10: Debt instruments are categorized on the basis of which one of the
following?
Select correct option:

Loan maturity period


Interest rates
Mode of payment of interest
Amount of the debt taken

Q 11: Which of the following is NOT an example of financial institutions? Select


correct option:

Banks
Securities firms
Stock exchanges
Insurance companies

http://vustudents.ning.com 47
Q 12: When stock prices reflect fundamental values:

All investors will experience capital gains


All companies will have an easier task of obtaining financing for investment
projects
The allocation of resources will be more efficient
The overall level of the stock market should move higher continuously

Q 13: If YTM is greater than the coupon rate the price of the bond is
__________. Select correct option:

Greater than its face value


Lower than its face value
Equals to its face value
All of the given options

Q 14: A __________ is a promise to make a series of payments on specific


future date.
Select correct option:

Stock
Bond
Loan
Cheque

Q 15: Without the ability of financial intermediaries to pool the resources of small
savers: Select correct option:

Borrowers needing large amounts of money would find it less costly to obtain the
funds
The economy would likely grow faster
People would likely save more
The risk associated with lending would increase

Q 16: A bank can usually offer a saver a higher return for the same risk because:
Select correct option:

The bank can usually purchase assets at a higher cost than any one saver
The bank can pool the resources of larger savers and purchase lower
denominated assets NOT SURE
Economies of scale can be applied by the bank in its purchase of assets None of
the given options

http://vustudents.ning.com 48
Q 17: The fact that a financial intermediary can use the same contract for many
customers is an example of: Select correct option:

Economies of Scope
The Law of Diminishing Marginal Returns
The Law of Increasing Opportunity Cost
Economies of Scale

Q 18: ____________ are organized to eliminate the need of costly information


gathering. Select correct option:

Central bank
Commercial banks
Stock exchanges
Insurance companies

Q 19: What will be the effect on the present value if we double the future value of
the payment? Select correct option:

It will decrease the value by one-half


It will increase the value by one-half
It will equally increase the value i.e. doubles the value NOT SURE
It will have no effect on the value

Q 20: Which one of the following is the narrowest definition of money? Select
correct option:

C
M1
M2
M3
MGT411 – Money & Banking
Online Quiz # 2
December 26, 2009

Question # 1 of 20 ( Start time: 02:24:40 AM ) Total Marks: 1


Core principles of Money and Banking include each of the following except?
Select correct option:

People act rationally

Time has value

Information is the basis for decisions

http://vustudents.ning.com 49
Risk requires compensation

Question # 2 of 20 ( Start time: 02:25:14 AM )


Internal Rate of Return is _________.
Select correct option:

Present value of investment

Future value of its investment +Cost of investment

Cost of investment

Present value of investment + cost of investment

Question # 3 of 20 ( Start time: 02:26:35 AM ) Total Marks: 1


The relationship between the price and the interest rate for a zero coupon bond
is best described as:
Select correct option:

Volatile

Stable

Non-existent

Inverse (see page # 43 of handouts)

Question # 4 of 20 ( Start time: 02:27:03 AM ) Total Marks: 1


Which one of the following is the narrowest definition of money?
Select correct option:

M1 (see page # 12)

M2

M3

http://vustudents.ning.com 50
Question # 5 of 20 ( Start time: 02:27:13 AM ) Total Marks: 1
Investors will hold higher compensation for the __________ investment.
Select correct option:

More risky

Less risky

Fixed return

Less dividend

Question # 6 of 20 ( Start time: 02:27:47 AM ) Total Marks: 1


What is the true relationship that exists between default risk and yield?
Select correct option:

Higher the default risk, higher the yield (see page # 53)

Lower the default risk, higher the yield

Higher the default risk yield will remain constant

Lower the default risk yield will remain constant

Question # 7 of 20 ( Start time: 02:28:19 AM ) Total Marks: 1


Without the ability of financial intermediaries to pool the resources of small
savers:
Select correct option:

Borrowers needing large amounts of money would find it less costly to obtain the
funds

The economy would likely grow faster

People would likely save more

The risk associated with lending would increase

http://vustudents.ning.com 51
Question # 8 of 20 ( Start time: 02:29:10 AM ) Total Marks: 1
When a bond becomes more liquid relative to its alternatives, the demand curve
for bonds shifts to the:
Select correct option:

Right (see page # 49)


Left
No change
None of the given options

Question # 9 of 20 ( Start time: 02:29:40 AM ) Total Marks: 1


In a financial market where information is symmetric:
Select correct option:

The same information would be known by both parties in a transaction

One party to a transaction knows information the other party does not

The ability to obtain information is available to only one party

All of the given options

Question # 10 of 20 ( Start time: 02:30:07 AM ) Total Marks: 1


The____________ are an assessment of the creditworthiness of the corporate
issuer.
Select correct option:

Bond yield

Bond ratings (see page # 54)

Bond risk

Bond price

http://vustudents.ning.com 52
Question # 11 of 20 ( Start time: 02:30:25 AM ) Total Marks: 1
An increase in the expected inflation shifts the bond demand to the _________.
Select correct option:

Right

Left

No change

All of the given options

Question # 12 of 20 ( Start time: 02:31:19 AM ) Total Marks: 1


Which of the following is NOT included in the definition of M1?
Select correct option:

Traveler’s checks

Demand deposits

Currency

Gold coins issued by treasury (see page # 12)

Question # 13 of 20 ( Start time: 02:32:21 AM ) Total Marks: 1


Bonds without maturity dates are which of the followings?
Select correct option:

Zero coupon bonds

Coupon securities

Consols

Preferred Bonds

http://vustudents.ning.com 53
Question # 14 of 20 ( Start time: 02:33:14 AM ) Total Marks: 1
Debt instruments is categorized on the basis of which one of the following?
Select correct option:

Loan maturity period (See page # 20)

Interest rates

Mode of payment of interest

Amount of the debt taken

Question # 15 of 20 ( Start time: 02:33:37 AM ) Total Marks: 1


Which of the following institution take direct deposit from customer and give loan
to customer directly?
Select correct option:

Zarai Tarkaytee Bank LTD

Soneri Bank

Khushali Bank

Credit unions

(not sure, but i selected option # 4, kindly verify it)

Question # 16 of 20 ( Start time: 02:33:53 AM ) Total Marks: 1


If we ignore risk, the dividend discount model says the fundamental price of a
stock is simply:
Select correct option:

The current dividend divided by the interest rate less the dividend growth rate

The annual growth rate of the dividend minus the interest rate divided by the
current dividend

The current dividend divided by the interest rate plus the dividend growth rate

The current dividend divided by the dividend growth rate less the interest rate

http://vustudents.ning.com 54
Question # 17 of 20 ( Start time: 02:34:59 AM ) Total Marks: 1
Which of the following is true of a nation's central bank?
Select correct option:

It makes important decisions about the nation's tax and public spending policies

It lends only to the nation's largest and most important business firms

It has many interactions with the nation's citizens and businesses

It is responsible for conducting the nation's monetary policy (see page # 96)

Question # 18 of 20 ( Start time: 02:35:56 AM ) Total Marks: 1


If bond’s rating is lower, what will be its price?
Select correct option:

Higher

Lower

Equal to

No change

(not 100% sure, but option # 2 "Lower" seems most appropriate)

Question # 19 of 20 ( Start time: 02:36:57 AM ) Total Marks: 1


The price of a coupon bond can best be described as:
Select correct option:

The present value of the face value

The future value of the coupon payments and the face value

The present value of the coupon payments

Both The present value of the face value and of the coupon payments (see
page # 31 & 32)

http://vustudents.ning.com 55
Question # 20 of 20 ( Start time: 02:37:36 AM ) Total Marks: 1
Which one of the following is NOT true for the expectation hypothesis?
Select correct option:

Risk free interest rate can be computed

There is uncertainty in the future

Identifying yield of bond today that will be available next year

It focuses on risk free interest rate and the risk premium

(not 100%, but I selected option # 2, see page # 58)

Question # 1 of 20 ( Start time: 12:09:02 AM ) Total Marks: 1


When a bond becomes more liquid relative to its alternatives, the demand curve
for bonds shifts to the:
Select correct option:

Right (page # 49)

Left

No change

None of the given options

Question # 2 of 20 ( Start time: 12:09:36 AM ) Total Marks: 1


According to the rule of 72 for reasonable rates of return, the time it takes to
__________ the money will be t =72/i%
Select correct option:

Doubles (page # 27)

Triples

halves

3/4

http://vustudents.ning.com 56
Question # 3 of 20 ( Start time: 12:10:22 AM ) Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:

M1 (see page # 12)

M2

M3

Question # 4 of 20 ( Start time: 12:11:17 AM ) Total Marks: 1


An index number is a valuable tool because:
Select correct option:

The number by itself provides all of the useful information needed

The index provides a meaningful measurement scale to calculate percentage


changes

The index is more stable than the data it reflects

It does not require any calculations to compute percentage changes

(not sure, but I selected option # 2, kindly verify it)

Question # 5 of 20 ( Start time: 12:12:34 AM ) Total Marks: 1


Yield curves show which of the followings?
Select correct option:

The relationship between bond interest rates (yields) and bond prices

The relationship between liquidity and bond interest rates (yields)

The relationship between risk and bond interest rates (yields)

The relationship between time to maturity and bond interest rates


(yields) (see page # 57)

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Question # 6 of 20 ( Start time: 12:12:55 AM ) Total Marks: 1
A zero coupon bond:
Select correct option:

Does not pay any coupon payments because the issuer is in default

Pays coupons only once a year versus the usual twice a year

Promises a single future payment (see page # 42)

Pays coupons only if the bond price is below face value

Question # 7 of 20 ( Start time: 12:13:32 AM ) Total Marks: 1


Home loans and car loans are the example of which one of the following?
Select correct option:

Mortgage loans

Pledge

Fixed Payment Loans (see page # 43)

Ordinary loan

Question # 8 of 20 ( Start time: 12:14:45 AM ) Total Marks: 1


Without the ability of financial intermediaries to pool the resources of small
savers:
Select correct option:

Borrowers needing large amounts of money would find it less costly to obtain the
funds

The economy would likely grow faster

People would likely save more

The risk associated with lending would increase

http://vustudents.ning.com 58
Question # 9 of 20 ( Start time: 12:16:11 AM ) Total Marks: 1
What is the true relationship that exists between default risk and yield?
Select correct option:

Higher the default risk, higher the yield (see page # 53)

Lower the default risk, higher the yield

Higher the default risk yield will remain constant

Lower the default risk yield will remain constant

Question # 10 of 20 ( Start time: 12:17:28 AM ) Total Marks: 1


Expectation hypothesis focuses on which one of the following?
Select correct option:

Risk premium

Risk free interest rate

Yield to maturity

None of the given options

(Not sure, but I selected option# 2)

Question # 11 of 20 ( Start time: 12:18:49 AM ) Total Marks: 1


Spreading involves:
Select correct option:

Finding assets whose returns are perfectly negatively correlated

Building a portfolio of assets whose returns move together

Investing in bonds and avoiding stocks during bad times

Adding assets to a portfolio that move independently

(Confused b/w option # 1 & 4, read page # 41)

http://vustudents.ning.com 59
Question # 12 of 20 ( Start time: 12:19:20 AM ) Total Marks: 1
The____________ are an assessment of the creditworthiness of the corporate
issuer.
Select correct option:

Bond yield

Bond ratings

Bond risk

Bond price

Question # 13 of 20 ( Start time: 12:19:36 AM ) Total Marks: 1


Which one of the following is the procedure of finding out the Present Value
(PV)?
Select correct option:

Discounting

Compounding

Time value of money

Bond pricing

Question # 14 of 20 ( Start time: 12:20:00 AM ) Total Marks: 1


Which of the following best describes the relationship between Bond prices and
yields?
Select correct option:

Move together inversely

Bond yields do not change since the coupon is fixed

Move together directly

Are independent of each other

http://vustudents.ning.com 60
Question # 15 of 20 ( Start time: 12:21:08 AM )
Which of the following institution take direct deposit from customer and give loan
to customer directly?
Select correct option:

Zarai Tarkaytee Bank LTD

Soneri Bank

Khushali Bank

Credit union

(I selected "Credit Union", not 100% sure)

Question # 16 of 20 ( Start time: 12:22:32 AM ) Total Marks: 1


When the auto manufacturing industry does poorly due to a recession this is an
example of:
Select correct option:

Idiosyncratic risk

Systematic risk

Risk premium

Unique risk

(It should be "Systematic Risk", but again not 100% sure) see page # 39.

http://vustudents.ning.com 61
Question # 17 of 20 ( Start time: 12:23:42 AM ) Total Marks: 1
A bank can usually offer a saver a higher return for the same risk because:
Select correct option:

The bank can usually purchase assets at a higher cost than any one saver

The bank can pool the resources of larger savers and purchase lower
denominated assets

Economies of scale can be applied by the bank in its purchase of assets

None of the given options

Question # 18 of 20 ( Start time: 12:24:51 AM ) Total Marks: 1


In a financial market where information is symmetric:
Select correct option:

The same information would be known by both parties in a transaction

One party to a transaction knows information the other party does not

The ability to obtain information is available to only one party

All of the given options

Question # 19 of 20 ( Start time: 12:25:29 AM ) Total Marks: 1


The shape of the yield curve is usually:
Select correct option:

Upward sloping (page # 60)

Downward sloping

Upward sloping for shorter maturities and downward sloping for longer maturities

Flat

http://vustudents.ning.com 62
Question # 20 of 20 ( Start time: 12:26:38 AM ) Total Marks: 1
Which one of the following is true for financial intermediaries?
Select correct option:

Channel funds from savers to borrowers

Greatly enhance economic efficiency

Have been an source of many financial innovations

All of the given options

MGT411 Solved MCQ5 from Quiz #2


The fact that common stockholders are residual claimants means:
Select correct option:

The stockholders receive the remains after everyone else is paid

The stockholders are paid any past due dividends before other claims are paid
The common stockholders are responsible for all corporate debts

Which one of the following is true for financial intermediaries?


Select correct option:

Channel funds from savers to borrowers


Greatly enhance economic efficiency
Have been an source of many financial innovations
All of the given options

relationship between the price and the interest rate for a zero coupon bond is
best described as:
Select correct option:

Volatile
Stable
Non-existent
Inverse

http://vustudents.ning.com 63
Reference: The price of a bond and the interest rate move in opposite
directions

Consumer Price Index (CPI) measures the:


Select correct option:

Changes in the quantity

Changes in the prices

Changes in the cost


Changes in the profit
Reference: CPI :Measure of the overall level of prices
Core principles of Money and Banking include each of the following except?
Select correct option:

People act rationally

Time has value


Information is the basis for decisions
Risk requires compensation

The longer the time (n) until the payment:


Select correct option:

The lower the present value

The higher the present value because time is valuable


The lower must be the interest rate
Time has no effect on present value

When stock prices reflect fundamental values:


Select correct option:

All investors will experience capital gains


All companies will have an easier task of obtaining financing for investment
projects

The allocation of resources will be more efficient

The overall level of the stock market should move higher continuously

http://vustudents.ning.com 64
Reference: So long as stock prices accurately reflect fundamental values, this
resource allocation mechanism works well

What will be the result of the difference of real and nominal interest rate?
Select correct option:

The cost of borrowing

The effect of inflation

The price of bonds


The return of bonds

If the annual interest rate is 6%, the price of a 1-year Treasury bill with $100 face
value would be:
Select correct option:

$94.00
$94.33
$95.25
$96.10

Which of the following would probably NOT earn an A rating from Standard &
Poor's:
Select correct option:

30 years bond issued by the U.S. Treasury


New vegetarian fast-food chain
90 days T-Bills issued by the U.S. Treasury

Both 30 years bond and 90 days T-Bills issued by U.S. Treasury

There is no guarantee that a bond issuer will make the promised payments is
known as which one of the following?
Select correct option:

Default risk
Inflation risk
Interest rate risk
Systematic risk

If a bond sells at a premium, where price exceeds face value, then we would
expect to see:
Select correct option:

http://vustudents.ning.com 65
Market interest rate the same as the coupon rate
Market interest rates above the coupon rate
Market interest rates below the coupon rate
All of the given options

Reference: So, When Market Interest Rate < Coupon Interest Rate, Market Value
(or Price) of Bond >Par Value. Because when market is offering lower rate of
return then the bond then the bond becomes
valuable. This is known as a Premium Bond. Pg no.68 MGT201 H.outs

Which of the following is a role of a financial institution acting as a financial


intermediary?
Select correct option:

Pooling the resources of small savers


Formulating oversight regulations
Sending out free calendars at the holidays
Lobbying legislators

Reference: The most straightforward economic function of a financial


intermediary is to pool the resources of many small savers Pg no.71 MGT411
H.outs

Financial Systems makes it easier to trade because it:


Select correct option:

Facilitate Payments
Channels Funds from Savers to Borrowers
Enables Risk Sharing

All of the given options

Which of the following is the measure of likelihood that an event will occur?
Select correct option:

Risk
Probability
Frequency
Outcom

The concept of limited liability says a stockholder of a corporation:


Select correct option:

Is liable for the corporation's liabilities, but nothing more


Cannot receive dividends that exceed their investment
Cannot own more than fiver percent of any public corporation
http://vustudents.ning.com 66
Cannot lose more than their investment

Reference: Because of limited liability, investor’s losses cannot exceed the price
they paid for the
stock Pg no.63 MGT411 H.outs

The risk premium for an investment:


Select correct option:

Increases with risk


Is a fixed amount added to the risk free return
Is negative for U.S. Treasury Securities
Is negative for risk averse investors

http://vustudents.ning.com 67

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